Charity professionals and experts have reacted to a public consultation on the next version of the charities accounting and reporting framework.
In March, proposals to update the Charities Statement of Recommended Practice (SORP) were issued to reflect changes introduced by the Financial Reporting Council to FRS 102, the financial reporting standard applicable in the UK and Republic of Ireland.
In a recent webinar exploring the key changes in the exposure draft SORP, and hosted by Civil Society, Fiona Condron, national head of charities at BDO, said there was a missed opportunity “to lighten the load for the very small charities”.
Peter Hucker, chief executive of Xledger UK, which sponsored the webinar, warned that the encouragement on sustainability reporting might risk becoming a box-ticking exercise.
Three-tier reporting
Among the proposed changes to the SORP are the introduction of an income-based three-tier reporting regime and new and enhanced disclosure requirements in areas including a charity’s impact.
The three tiers are as follows: tier one (all charities applying accruals accounts and with a gross income of not more than £500,000 or €500,000), tier two (all charities with a gross income falling above the tier one threshold and with a gross income of not more than £15m or €15m), and tier three (all charities with a gross income falling above the tier two threshold).
Condron said it is interesting that one can now think about the size of charities and how their reporting should be applied, but pointed out that “there’s no micro-entity option”.
“For those very small charities, there’s still quite a big chunk of stuff that they’ll need to comply with,” she said.
“Interestingly, the majority of this tiering is related to the trustees’ annual report, not the main financial statements, other than an opportunity for smaller charities to apply what they call ‘natural reporting’ for their expenditure.
“The natural classification doesn’t preclude smaller charities from disclosing other aspects that they want to.”
Disclosure requirements
The exposure draft SORP proposes “new and enhanced disclosure requirements, including information about the charity’s impact, volunteers and sustainability reporting”.
On sustainability reporting, charities in tiers one and two are “encouraged” to explain in their reports how they respond to and manage environmental, social and governance (ESG) matters, whereas those in tier three “must” include a summary in their reports.
Hucker said: “If we compare charity reporting to a for-profit organisation, then charity reporting is less about how efficiently an organisation generates income and more about assessing the impact that this income has on society.
“ESG aligns with those goals. If an organisation can demonstrate its environmental credentials, strong governance and ethical standing, that can only be a positive thing.”
However, he warned that by mandating charities in tier three to report on these matters, there is a risk that it becomes a checkbox exercise.
Impact on small charities
Overall, the exposure draft SORP contains 29 modules and a glossary, and is 304 pages long.
Condron said “the SORP doesn’t remove the requirement for some of the stuff which is very onerous for very small organisations”.
“Perhaps, there was an opportunity to lighten the load for the very small charities that are doing great work but don’t have the resources and time to wade through 300 pages of a SORP and work out what they need to do.”
She added that with so many references to FRS 102 in the SORP, “I can see a lot of head scratching by people sitting with a 300-page version of the SORP and almost an equal number of pages for FRS 102, flicking between the two to try and fathom out what they need to do and where”.
“In a world of complexity, it’d have been nice to have created some areas of simplicity and cut back for some organisations.”
‘Step in the right direction’
However, the speakers said the exposure draft SORP is a step in the right direction.
Jakina Matthews, head of finance at the MND Association, commented: “These reporting changes to the SORP bring us all in line, making us all consistent in what we do and report to give more confidence to the wider world that charities are doing things right.”
She particularly appreciates the numerous examples, directions, hints and tips listed in the exposure draft SORP.
“Those of us who have been around for a while and are larger than £15m income, we’re probably complying with 60% or 70% of what they want anyway, in our reporting and the way we manage our transactions through our systems.
“So, this is just affirming that we’re doing it in the right way.”
The full article will be published in the June issue of Charity Finance.
Related articles
